Finding the right talent and management teams that can lead companies into the next level of sustainable growth, is perhaps the most important issue confronting venture capital and private equity investors, when they look for dream buys, top professionals in this space said during discussions at ‘insprreneur Connect & Grow’, an event that aims to connect investors and startups from India and South East Asia.
This event is part of the Asean-India Pravasi Bhartiya Divas that is being held in Singapore over the weekend (January 6-7).
“…Finding the right management team that will come in and plug itself into businesses of scale, I think is the hardest commodity today and it is cross functional. It is very hard to find, CFOs, sales head and CEOs that can lead the business. It takes most of our time that we spend in the businesses that we buy…,” said Atul Kapur, Co-Founder & Managing Partner, Everstone Group.
Speaking on the panel named ‘Opportunities to build world class companies in India and Asean’ last Friday, Kapur, pointed out that PE and VC investors do not get 10-15 years to scale the businesses they invest in as they have to return capital to their investors, but have to do with a 5-6 year window. Within that period they have to grow their ventures to get an exit. Hence the need to find the right leadership for the business is critical, he added.
Everstone, among the largest PE firms in the region, has assets under management of approximately $4 billion, with over 200 people working across six offices—Singapore, Mumbai, Delhi, Bengaluru, Mauritius and London, and its invests in consumer firms, F&B, healthcare, as well as real estate. It had recently acquired (through its platform Everlife) Malaysia’s Chemopharm Sdn Bhd, a provider of products and services to laboratory, research and medical facilities in South-East Asia
Rajiv Menon, Managing Director Head of APAC & Japan at Cisco Investments said while investors were looking for companies with great management teams, entrepreneurs often held a contrasting view that they (founders) had the right talent and expertise to run their ventures.
When a team proves that it has the right talent to execute, the opposite will happen – funds will chase those companies, he added.
Menon said that a factor he appreciated among companies was a clear thought process or vision to the quickest path to global scale, which depending on the firm could be geographic choices, big or small customer bases, among others. Cisco, having been rooted in deep technology space looks at companies that have built a great IP, he said.
According to Pravan Malhotra, Venture Capital Head, Asia for Internet Investments at IFC, the organisation was investing in emerging markets, and added that the venture arm of the World bank would look at possible markets and other investors or rather partners when choosing to enter a company.
“The other part is looking at the track record and the team so that they could go to the next level. Earlier we used to get really experienced entrepreneurs and now there is a mix in our portfolio,” he said.
As in the previous years, the challenge in 2018 too for investors would be to talent acquisition, so that they could add value along with capital to their portfolio companies.
Padmaja Ruparel, co-founder and president of Indian Angel Network said that when companies source investments from angels or funds, the teams at these startups have often reached a stage where they need additional skills. “So, the questions that stays is whether the promoters can stitch them together,” she said.
“A lot of startups come and say that in US, such and such company got this valuation, and why are we not getting comparable ones. But, we in this market (India) see it at a different level. The kind of execution, scale and effort required in different markets differ and hence the valuations,” Ruparel added.
Asked if they would invest in companies, when there was a larger and better capitalised player in the same space, all panelists said the existence of a bigger player or competitor alone would not not be a detriment to VCs or PEs committing capital to a company. They also added that in such scenarios, investors would strongly evaluate if the startups offerings could be different from that of the larger player.
“We would look at it, but we would be pretty cautious of it. If there is a large player and well capitalized with lots of money to burn, but if this particular entrepreneur has something incredible that is truly differentiative that a larger company could not replicate, we will look at it,” said Pravan Malhotra.
Atul Kapur of Everstone said that it was a fact that market share for larger companies can only go down. “As long as the idea is not suicidal we would be more than happy to buy a business,” he added.